Will we get another mortgage?

Benny123

We are currently living in a house with negative equity. We hope to build and move to another house. We already have the foundation complete and think it will now take another €180K to complete the house. The site was valued at €80K at transfer (from parent) and site works to date have cost about €40K (incl foundation). We have financed this from cashflow to date. Given the current economic situation will we get a mortgage? Any suggestions about how to get one?

homer911

This is a question you should really have asked yourself before starting any work at all.

The bank will only lend against the value of the property, and will take nto account your ability to repay. The fact that your current property is in negative equity is not really relevant. What is your capacity to repay the current mortgage and sewrvice a mortgage on the new property at the same time, Interest Only at the very least, but probably P&I. Talk to a Financial Adviser.

seamus

The only answer you can get here is "probably".

Basically, the problem with negative equity is that when you sell your existing house, you end up still owing the bank money. That is, if your mortgage is €300k and you sell your house for €250k, you still owe the bank money. And you cannot transfer the deeds of your house to another buyer until that debt is cleared.

However, it may be possible to transfer that debt to the new property if the shortfall in equity is available to you in the new property.

So let's say the site is worth €80k and you've paid €40k out of your pocket on works so far. So technically the value of the site is now €120k. That's equity - it's money available to you. You need €180k more to finish the house, but your other home is (for e.g.) €50k in negative equity. So in order to release the mortgage on your existing home *and* get the money you need to complete your build, you need a mortgage of €230k secured on the new build. Unless you're very flush with cash, you will most likely have trouble getting this mortgage before you sell your existing home.

Doesn't sound like a big deal, really. The logistics might be a bit messier, but it would be worth sitting down with your existing lender and discussing it. Organise valuations based on the site as it currently stands and based on the plans. Get a number of quotes from a number of different builders.

ferga_com

At the very least, you'll need to have an architect or engineer certify that s/he has supervised building works to date and will supervise and certify all future works. Some won't lend against a house where work has already started but others will.